While awaiting FDA's final safety evaluation and Medicare's final coverage policy on erythropoeisis-stimulating agents, Johnson & Johnson will maintain a conservative stance on sales and earnings for the second half of the year.

"I would say we're being prudent with our guidance for the year pending the outcome of those uncertainties," VP-Finance and Chief Financial Officer Dominic Caruso said during the company's second quarter sales and earnings conference call July 17.

"We had the label change and publicity leading up to the [Oncologic Drugs Advisory Committee] panel. We have seen a market decline that we believe is a direct result of those two events," he said.

"What we don't know ... is the ultimate outcome of the FDA's conclusion as a result of the ODAC panel and CMS' reimbursement ultimate conclusion. That we haven't totally factored in, and I think it's premature for us to speculate on that."

On the same day as J&J's second quarter call, FDA set Sept. 11 as the date for the widely-expected advisory committee session on ESAs for anemia in chronic renal cell patients. The meeting will be convened jointly by the Cardiovascular and Renal Drugs and Drug Safety and Risk Management committees.

During the call, J&J announced it was lowering sales expectations for the year after sales of the company's epoetin alfa franchise Procrit/Eprex declined during the quarter.

Sales of Procrit plunged 14 percent to $449 million in the second quarter. Eprex - the brand name for epoetin alfa in Europe - fared better, with 9 percent growth in the quarter, fueled by the oncology market.

Together, worldwide sales of Procrit/Eprex fell 6 percent over the year-ago period to $758 million, following first quarter growth of 4 percent. On an operational basis, excluding the benefit of currency, sales of Procrit/Eprex fell 8 percent.

"We saw a retraction in the U.S. market for erythropoietin-stimulating agents as a result of the ODAC discussions, the label changes and the potential changes to reimbursement," VP-Investor Relations Louise Mehrotra said.

FDA's ODAC reviewed emerging safety data on the increased risks of ESAs during a May meeting, and determined that additional studies should be required for the treatment of chemotherapy-induced anemia and also recommended that further restrictions be added to labeling (¹ Also see "EPO Scathed But Survives ODAC Challenge; Cmte. Calls For Additional Trials" - Pink Sheet, 14 May, 2007., p. 3).

Compounding the issue, CMS issued a proposal for public comment May 14 recommending that Medicare Part B no longer cover ESA anemia treatment for 13 uses in cancer patients and that for several others, restrictions would be imposed such as limits on duration of use or on dosages (² Also see "CMS May Take Studious Approach To Covering ESAs In Cancer Setting" - Pink Sheet, 21 May, 2007., p. 3).

Given the ongoing uncertainties plus erosion in the market for drug-eluting stents, Caruso said J&J is lowering its full year operational sales guidance to between 11.5 percent and 12 percent. The company is comfortable with earnings per share forecasts of between $4.02 and $4.07, consistent with previous guidance, he added.

Ahead of CMS' final decision, however, Blue Shield of California released information to physicians July 2 informing them it would no longer provide reimbursement of ESAs, including Procrit and Amgen's Aranesp (darbepoetin alfa) and Epogen (epoetin alfa), for patients with cancer not undergoing chemotherapy or with hemoglobin levels over 10 g/dL. Procrit is also recommended as the group's preferred treatment.

Despite favoring of Procrit, J&J cautioned that the Blue Shield policy is not a completely positive development for the company.

"Obviously we are happy that they selected Procrit as the product to reimburse, but we were a little disappointed that they actually adopted some of the more stringent reimbursement guidelines that CMS had suggested," Caruso said.

"It's positive in the sense that it's Procrit. It's negative in the sense that it's harsher reimbursement than we would have liked to have seen," he added.

Amgen opposed the Blue Shield policy and pointed out that 2,000 physicians, nurses, advocacy groups, patients and national medical societies have commented on the CMS proposal. The "overwhelming majority" of comments opposed the CMS proposal, Amgen said.

In its comments on the Medicare proposal, J&J said it might be able to agree to limiting coverage for ESAs to the clinical trial setting for a subset of Medicare patients, but that restrictions should not be applied to currently labeled uses. The Medicare agency specifically requested comment on limiting coverage for many uses of ESAs in the cancer setting to clinical trials.

On top of the issues facing Procrit in the U.S., Eprex will also be facing stiffer competition in Europe toward the end of the year.

The European Medicine Agency's Committee for Medicinal Products for Human Use adopted a positive opinion of three biosimilar ESA products in June - Sandoz's Binocrit , Medice Arzneimittel Putter's Abseamed and Hexal Biotech's epoetin alfa - potentially opening the door for the first biosimilar ESAs to hit the market.

Sandoz has said it aims to launch Binocrit in 2007, once the European Commission grants final marketing authorization.

"We don't expect to see those hit the market until later this year in the fourth quarter ... so, we don't expect much of an impact this year," Caruso said. "When we talk to you about our '08 expectations, we'll obviously take that into consideration once we see their impact at the market."

As J&J's top-line growth slows, due to both the ESA issues and increasing generic competition, the company will continue to evaluate cost-cutting measures to drive the bottom line.

"We always look for efficiencies, and obviously when sales growth is slower than it has been in historical periods, then the ability to do that is harder, so we have to look at more programs, more activities and accelerate certain activities that are already underway," Caruso said.

One recently taken step was to outsource global human resource functions. The firm also has standardized operations in information technology, finance and procurement to help lower the cost structure.

The company announced two pipeline updates during the quarterly call. The firm's Tiobtec division filed the investigational HIV drug etravirine (TMC 125) with FDA; the antiviral has fast track status.

The filing is based on Phase III study results reported in June demonstrating the antiviral activity of the non-nucleoside reverse transcriptase inhibitor in patients with documented NNRTI and protease inhibitor resistance (³ Also see "J&J Growth Plan Calls For Four Virology Filings In As Many Years" - Pink Sheet, 11 June, 2007., p. 19).

Meanwhile, J&J said it has decided not to pursue regulatory approval of Zarnestra (tipifarnib) for acute myeloid leukemia. Zarnestra in AML was one of five additional filings J&J planned to submit to FDA by the end of the year, aside from TMC 125.

J&J decided not to submit Zarnestraafter reviewing disappointing top-line data from a Phase III registration trial.

"While 8 percent of the patients showed complete remission, the product failed to show a statistically significant difference in efficacy versus best supportive care for survival, the primary endpoint," Mehrotra said. The firm will continue to assess whether Zarnestra demonstrated sufficient activity to continue studying the drug in other indications, she said.

J&J received a "not approvable" letter for Zarnestra in 2005 based on Phase II data in elderly patients with AML (⁴ Also see "Leukemia Trials Need Broader Populations, FDA/ASH Workshop Suggests" - Pink Sheet, 4 July, 2005., p. 23).

In the second quarter, J&J's worldwide pharmaceutical sales increased 5.8 percent, including a positive 2 percent gain from currency in the second quarter to $6.15 billion.

Growth drivers within the pharma segment included the antiepileptic Topamax (topiramate), fueled by growth in the migraine market, the autoimmune diseases treatment Remicade (infliximab) and the antipsychotic franchise, including Risperdal (risperidone), Risperdal Consta and Concerta (methylphenidate).

Consolidated sales increased 13.2 percent to $15.1 billion, while net earnings were $3.1 billion, reflecting a 6 percent increase over the year ago period, excluding a charge in the 2006 quarter related to the acquisition of Vascular Control Systems.

- Jessica Merrill (j.merrill@elsevier.com)

J&J Cautious On Sales Projections Pending FDA, CMS Decisions On ESAs

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